What is forex?
Forex (or FX) stands for “foreign exchange” or “foreign currencies” which are what are traded on the forex market. You always trade in pairs, for example you can trade the US dollar (USD) against the euro (EUR).
The Internet has opened up forex trading to individuals and thousands of traders around the world now trade forex regularly on online forex platforms. In fact, there are so many platforms on offer that it's vital to select a good one.
The online forex market is 90% speculative, which means that you don’t purchase or sell actual, physical currency. Rather, you open and close deals and make either a profit or loss which is reflected in your online account.
There are two parties to an online forex deal: you as the trader and the market-maker, like easy-forex. A market maker is a company that stands by with a firm ask and bid price on a currency, literally making the market for traders to trade.
When to trade?
Because forex is a truly global market, you can trade 24 hours, five days a week. As one region’s market day ends, the next region’s market day begins. Mobile technology means you can trade on the mobile phone or tablet of your choice, wherever you are.
How to choose a forex platform
Here’s a checklist for you to use when choosing a forex platform or broker.
- Is the broker registered and what regulations does it operate under?
- How secure are your funds? Are they kept in a segregated account?
Don’t go with a platform that offers huge opportunities to profit without warning you about the risks.
- How much do you need to deposit to start trading? (At easy-forex you can open an account and trade with just $25)
- Can you open a practice account till you feel ready to start proper trading?
- Does your forex provider give you a choice of platforms? With easy-forex you can trade via a web platform, mobile platform or desktop platforms including MT4.
- What education and training does the platform provide? Do they offer free webinars and seminars in your area?
- What ongoing support will you get? (easy-forex offers personalised support to traders via live chat, phone and email contact, SMS alerts and Twitter updates from the Dealing Room).
Check out whether the broker has any innovative tools for traders. For example, at easy-forex we allow traders to freeze the rate they have chosen until they are ready to confirm the deal. We also have a unique tool called Inside Viewer™ which gives you a glimpse into which currencies are most popularly traded at any one moment.
More technical points
Here are some more technical aspects to check. Feel free to contact us at easy-forex if you need clarification:
- is your stop-loss guaranteed? (you want this)
- is maintenance margin required? (you don’t want this)
- do you pay a commission on deals (you don’t want this either)
- do you have transparency when markets are volatile with fixed spreads?
- do you get free technical analysis signals and market news?
- can you capitalize on small price movements with fractional pip pricing?
The forex market has some advantages over other types of trading, such as traditional stocks. Here are just two of them:
- Liquidity. The high volumes traded lead to high liquidity, meaning tradability. The big advantage of liquidity is that you can always find demand to sell or buy, when you wish.
- Increased leverage. Leverage is the way you can use a small investment to get a greater yield. Most stock markets offer 1:2 leverage on margin accounts. With forex 1:100 and higher is common. This means your opportunities for gain are enhanced. (Remember too though that your risk also increases.)
Forex trading can be one of the most rewarding ways to make money. Feel free to use the above checklist to find the best forex broker for you. And good luck with your trading!
Forex trading involves substantial risk of loss. Do not invest money you cannot afford to lose!
This article has been submitted by Nicolas Shamtanis, dealing room manager at easy-forex. easy-forex is a pioneer online-currency-trading group that was founded in 2003, and has revolutionised currency trading in over 160 countries ever since. Easy Forex Trading Ltd. (CySEC - License Number 079/07)